Nearly 25% of first-time home buyers open a new credit card when closing a home. Why this might be a really bad idea.
Almost a quarter of first-time buyers open new cards within six months of buying a home, according to a new study.
The Realtor.com and Experian study, which was released in May but examines consumer behavior between 2020 and 2021, found that 24.4% of first-time buyers opened a new bank card within the first six months of buying a new home, compared to just 1% of current owners.
At the same time, 21.5% of first-time buyers opened a new merchant card in the first six months following the purchase of a new home.
About 57% of these consumers also opened a new bank card within two months of closing a new home. And on average, they opened about 1.55 cards in total.
“Racking up credit card debt on top of taking out a mortgage can be a tricky thing, when disaster strikes – maybe you lose your job or an illness sets in that puts a break on your income. ”
Additionally, first-time buyers have $300 more credit card balance than existing buyers and $455 more than renters, according to the report, in the first month after buying a home. home.
Why do people open maps after getting closer to their new dream home?
“It’s common to sign up for a new credit card soon after closing a home,” Ted Rossman, senior industry analyst at Bankrate.com, told MarketWatch.
One of the main reasons is to use those big purchases to earn rewards, he said, from buying furniture to moving costs to repairs.
“When money is tight, as it probably is after buying a home, the ability to spread out payments with a 0% interest promotion is really compelling,” he said. added, like with a credit card that allows interest-free bank transfers for 21 years. month.
At the same time, racking up credit card debt on top of taking out a mortgage can be a tricky thing, when disaster strikes – maybe you lose your job or an illness sets in that puts a pause on your income.
““Opening a new credit card can cause your credit score to drop temporarily, and applying for new credit during the mortgage process can make you look like a risky borrower.””
So before signing up for a new card, Rossman advises a new buyer who is about to do just that to consider whether they can pay their bills in full – with an average interest rate of 17.25% – each month.
“Put the interest rate first because you don’t want to pay 17.25% interest if you only earn a few percentage points in cash back or an equivalent amount of airline miles or hotel points” , Rossman said.
And wait to request a new card only after closing of the mortgage, he pointed out.
“Mortgage lenders don’t like to see changes to your credit profile during the underwriting process,” Rossman explained.
“Opening a new credit card can cause your credit score to drop temporarily, and applying for new credit during the mortgage process can make you look like a risky borrower. It makes lenders nervous,” he added. “A mortgage is a huge commitment, so don’t do anything (like open a new credit card) that might jeopardize your chances of approval or raise your interest rate.”
(Realtor.com is owned by the same parent company as MarketWatch.)
Write to MarketWatch reporter Aarthi Swaminathan at [email protected]
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